Investing.com - Kevin Hassett will likely try to cut interest rates well below 3% should he be nominated to become the next Chair of the Federal Reserve, according to analysts at BofA Securities.
In a note, the strategists including Aditya Bhave and Mark Cabana predicted Hassett would advocate for deep reductions to borrowing costs at the helm of the central bank, echoing frequent calls by U.S. President Donald Trump.
The comments come as Hassett, the current White House National Economic Council Director and a close Trump ally, is emerging as the frontrunner to become the next Fed Chair, according to Bloomberg News, citing people familiar with the matter.
Sources speaking on condition of anonymity to Bloomberg indicated that Trump sees Hassett as someone who would bring his approach to interest rates to the central bank. Traders on prediction market Kalshi see a roughly 54% chance Hassett will be Trump’s pick, outpacing other potential candidates like Fed Governor Christopher Waller and former Fed Governor Kevin Warsh.
Whether Hassett would succeed in aggressively bringing down rates, which stand at a target range of 3.75% to 4%, "will depend not only the data flow but also the composition" of the rate-setting Federal Open Market Committee, the BofA analysts said.
"If the economy is as resilient as we expect and there is limited turnover on the committee, Hassett might struggle to make the case for deep cuts," they wrote, calling Hassett "a dove in search of credibility."
Analysts at Vital Knowledge have suggested the appointment of a Trump loyalist to replace current Fed Chair Jerome Powell, whose terms ends in May, could lead to a "setback in credibility" of the Fed, an institution long held to be capable of setting monetary policy independent of political interference.
In an interview last week, Hassett stressed the importance of the Fed’s independence -- comments the BofA analysts "saw [...] as an overture to the FOMC."
Wagers that the Fed will eventually be led by Hassett helped push the benchmark 10-year U.S. Treasury yield below 4% on Tuesday, although it rose back above this level on Wednesday. Yields tend to move inversely to prices.
Investors are also anticipating that the Fed could slash rates once again at its next policy gathering in December. Officials previously reduced borrowing costs by 25 basis points at its prior two meetings in October and September.